The GFCI evaluates the competitiveness of financial centres worldwide by bringing together the results of online surveys completed by financial services leaders and separate indices of competitiveness.  The third edition of the GFCI, produced by Z/Yen Group Limited, includes a special feature on the role of skills in a financial centre's competitiveness.

Executive Summary:

The City of London’s Global Financial Centres Index (GFCI) was first published in March 2007. It rated and ranked each major financial centre in the world in terms of competitiveness. The original research was then updated and expanded and the results were presented in GFCI 2, published in September 2007. The growth and additional data in successive editions also enabled the Index to highlight the changing priorities and concerns of finance professionals.

The present report, GFCI 3 (the third in the series), updates some of the external indices used in the GFCI model and adds eight new indices of features contributing to competitiveness. Since GFCI 2, 411 additional respondents have filled in the online questionnaire, thereby providing 7,193 new assessments from financial services professionals across the world. The GFCI 3 model provides ratings for centres using a total of 62 external indices (called “instrumental factors”) and a total of 18,878 assessments from 1,236 respondents (see Appendix A for more information on the GFCI Methodology.)

GFCI 3 contains a special chapter (Chapter 5) focusing on skills in the financial sector, a critical component of competitiveness. This chapter draws on GFCI and selected external data and analysis. The focus on skills reflects a widely-held view summed up by one respondent:

The availability of skilled, high quality people, and the support received from government to recruit or bring them into the jurisdiction is the single greatest multiplier in all other aspects of successful business…

The top eight centres in GFCI 3 have maintained the same rankings as in GFCI 2. GFCI 3 shows again that London and New York are the two leading global financial centres, some 90 points ahead of the next two centres. Singapore (ranked number 4) is gaining slightly on Hong Kong (ranked number 3), with the gap between those two centres narrowing in GFCI 3 to just 20 points.

London has halved its lead over New York (dropping from 806 points to 795 out of 1,000, and a reduced lead of nine points), possibly reflecting the run on the UK bank Northern Rock and prospective changes in the UK non-domiciled taxation system, both of which generated comment from respondents. The overall rankings use a combination of questionnaire responses and external indices. Using only the 7,193 assessments collected through the online questionnaire since GFCI 2, the average assessment rating of New York actually exceeds the average assessment rating of London (by 839 points against 793).

London maintained its overall lead in all five areas of competitiveness, that is, people, business environment, market access, infrastructure and general competitiveness. The responses were also broken down by the sector of the respondents, and, for the first time, New York has overtaken London in the Banking Sub-Index. This may have been driven by a perception of the banking respondents that there has been a less effective regulatory response to the problems at the Northern Rock bank in the UK than by the US in general to the global liquidity shock. Chicago advanced from eighth to sixth place, despite continuing negative comment from respondents about Sarbanes-Oxley regulatory requirements in the US.

The Gulf State centres have risen strongly in the ratings between GFCI 2 and GFCI 3. Dubai continues to be identified in assessments as a key and growing regional hub, and Bahrain and Qatar have experienced the biggest increase in the ratings, by 59 and 51 points, respectively. All of the Gulf State centres seem to benefit from substantial investment in financial infrastructure.

Off-shore centres performed increasingly well across the board in GFCI 3. The two main financial centres in the Channel Islands were listed separately in this Index, with Jersey ranking 16th, and Guernsey 19th out of the top 50 (compared with their combined ranking of 23rd in GFCI 2). Gibraltar (26th) and the British Virgin Islands (27th) were new to the GFCI. Although the Cayman Islands (25th) and Hamilton, Bermuda (28th) gained eleven points in the ratings, they moved downward in the rankings because of new entries to the Index from off-shore and other centres. The Isle of Man remained in 21st place.

Johannesburg and Shanghai, both identified as “Volatile” in GFCI 2, scored substantially higher in the ratings here. Johannesburg gained 48 points in the ratings, and Shanghai 27 points, although falling from 30th to 31st in the GFCI 3 rankings. Respondents still identified them as notably dynamic on both a regional and global scale.

Among the financial centres to watch, the top three cities identified as becoming “…significantly more important over the next two to three years…” were Dubai, Shanghai, and Singapore.

Issues of regulation and access to dynamic pools of skilled labour were repeatedly identified as key concerns, though transportation infrastructure remained a frustration in the most competitive financial centres.

Please participate in the GFCI by rating the financial centres you are familiar with at: www.cityoflondon.gov.uk/GFCI

Download The Global Financial Centres Index (GFCI) 3, March 2008

PDF format, 1MB, 80 Pages.

The Global Financial Centres Index is published by the City of London. The authors of the report are Mark Yeandle, Alexander Knapp, Michael Mainelli and Ian Harris of the Z/Yen Group.

Foreword
Michael Snyder
Chairman, Policy and Resources Committee, City of London

The Global Financial Centres Index 3 (GFCI 3) is the third report produced by the Z/Yen Group for the City of London which ranks financial centres based on external benchmarking data and current perceptions of competitiveness. Previous GFCI reports, and other City of London commissioned research, such as The Impact of Taxation on Financial Services Business Location Decisions, show that international financial services firms, and the talented staff that they employ, are both highly mobile and responsive to a range of both market and non-market factors. These factors are important to policy makers looking to maintain or improve the competitiveness of their markets.

GFCI 3 shows that, as in the case of GFCI 1 and GFCI 2, London and New York are the leading global financial centres, with London continuing to be ahead but by a smaller margin than in the previous report. This reflects as before the excellent access of London to markets, skilled staff and a proportionate regulatory regime.

With the Financial Services Action Plan being rolled out across Europe we are seeing a progressive and welcome reduction in market barriers to international financial services. In this context, infrastructure and taxation are likely to be even higher on the list of competitive factors influencing the perceptions of individuals employed in global firms. On these measures London’s lead is being squeezed and there is no room for complacency if we are to safeguard and improve the resilience and competitiveness of this financial centre.

Since the publication of GFCI 2, the collapse of the sub-prime mortgage market in the US, the subsequent write down of US mortgage-backed financial products, and the dissemination of the associated credit shock and liquidity crisis through the global financial system via securitised debt products have shown that international financial markets are highly interdependent and strongly linked to the real economy. In this connection it is also worth noting the increased attention that is being paid to the role of the emerging markets of China, India and Brazil.

As in previous reports, the evidence gathered in GFCI 3 reflects the inputs by financial services respondents and I would encourage professionals around the globe to participate in the ongoing survey.

Michael Snyder
City of London
March 2008

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